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3. Bill Jenkins runs "Dog Lovers Ltd" a dog boarding kennels, mainly aimed at holiday makers leaving their dogs when they go away. The kennels has a capacity for 40 dogs per day. The normal rates are 22 per day for large dogs and 18 per day for small dogs. Each dog is checked on arrival to ensure that there is nothing which could be passed on to other dogs. The checks are done by a vet which costs 20 per dog per visit and a groomer charging 15 per dog per visit. These checks are essential and are paid for by "Dog Lovers Ltd". If a dog requires further visits from the vet, the customer is charged at a rate of 150% of the vet's fees. For budget preparation purposes, the average stay is 10 days, although in practice the number of days may be different. To create this budget, the mix of dogs is assumed to be 50% large and 50% small. Feed costs 1.00 per day per dog irrespective of the size of the dog. Bill Jenkins is not an accountant but has tried to prepare a master budget for the financial quarter to 31.12.20 based on the information above. The budget, the actual performance and the variances he has prepared are shown below: Dog Lovers Performance Report for 3 months (91days) ended 31.12.2020 Variance Budget Standard (per Dog per Day) Master Actual Budget Net income 364 550 3640 3560 72.800 71,240 0 450 72.800 71,690 20.00 160(A)* 1,560(A) 450(F) 1.110(A) Number of dogs boarded Number of boarding days Revenues Boarding Fees Additional vet fees Total revenues Less variable expenses Feed & supplies Veterinary fees Grooming fees Total variable expenses Contribution margin 1.00 2.00 1.50 4.50 15.50 3,640 7,280 5,460 16.380 56,420 3,866 11,300 8.250 23.416 48,274 226(A) 4,020 (A) 2.790 (A) 7.036(A) 8,146(A) Less fixed expenses Depreciation & insurance Rates, light and heat Repairs maintenance Labour Total fixed expenses Net income 6,000 3,000 1,000 18,000 28.000 28,420 6,000 3,200 400 18.800 28,400 19,874 0 200 (A) 600 (F) 800 (A) 400(A) 8,546(A) F = Favourable A = Adverse 3 (continued) Bill Jenkins is concerned about the much lower profit for the quarter compared to the budget. Except for favourable variances on fixed expenses for repairs and maintenance and the money for additional vet charges everything is unfavourable. The supplier of Feed and Supplies wamed Bill that these costs would increase by 10% (based on the figures used in the budget), so the kennels have attempted to take care not to waste food. Kennel fees charges and veterinary and grooming rates have stayed the same during the period. Required: a) Explain the purpose of standard costs and revenues using a variable (marginal) cost system (3 marks) b) Bill Jenkins may not have used the correct approach to his performance report. Using any calculations you consider appropriate, provide a revised financial report, including all possible variances. In particular provide a sales mix variance broken down by number of small and large dogs and planning and operating variance for feed and supplies. (12 marks) c) Write a brief report to Bill Jenkins on the financial performance of the kennels for the quarter giving advice for the future. (5 marks) 3. Bill Jenkins runs "Dog Lovers Ltd" a dog boarding kennels, mainly aimed at holiday makers leaving their dogs when they go away. The kennels has a capacity for 40 dogs per day. The normal rates are 22 per day for large dogs and 18 per day for small dogs. Each dog is checked on arrival to ensure that there is nothing which could be passed on to other dogs. The checks are done by a vet which costs 20 per dog per visit and a groomer charging 15 per dog per visit. These checks are essential and are paid for by "Dog Lovers Ltd". If a dog requires further visits from the vet, the customer is charged at a rate of 150% of the vet's fees. For budget preparation purposes, the average stay is 10 days, although in practice the number of days may be different. To create this budget, the mix of dogs is assumed to be 50% large and 50% small. Feed costs 1.00 per day per dog irrespective of the size of the dog. Bill Jenkins is not an accountant but has tried to prepare a master budget for the financial quarter to 31.12.20 based on the information above. The budget, the actual performance and the variances he has prepared are shown below: Dog Lovers Performance Report for 3 months (91days) ended 31.12.2020 Variance Budget Standard (per Dog per Day) Master Actual Budget Net income 364 550 3640 3560 72.800 71,240 0 450 72.800 71,690 20.00 160(A)* 1,560(A) 450(F) 1.110(A) Number of dogs boarded Number of boarding days Revenues Boarding Fees Additional vet fees Total revenues Less variable expenses Feed & supplies Veterinary fees Grooming fees Total variable expenses Contribution margin 1.00 2.00 1.50 4.50 15.50 3,640 7,280 5,460 16.380 56,420 3,866 11,300 8.250 23.416 48,274 226(A) 4,020 (A) 2.790 (A) 7.036(A) 8,146(A) Less fixed expenses Depreciation & insurance Rates, light and heat Repairs maintenance Labour Total fixed expenses Net income 6,000 3,000 1,000 18,000 28.000 28,420 6,000 3,200 400 18.800 28,400 19,874 0 200 (A) 600 (F) 800 (A) 400(A) 8,546(A) F = Favourable A = Adverse 3 (continued) Bill Jenkins is concerned about the much lower profit for the quarter compared to the budget. Except for favourable variances on fixed expenses for repairs and maintenance and the money for additional vet charges everything is unfavourable. The supplier of Feed and Supplies wamed Bill that these costs would increase by 10% (based on the figures used in the budget), so the kennels have attempted to take care not to waste food. Kennel fees charges and veterinary and grooming rates have stayed the same during the period. Required: a) Explain the purpose of standard costs and revenues using a variable (marginal) cost system (3 marks) b) Bill Jenkins may not have used the correct approach to his performance report. Using any calculations you consider appropriate, provide a revised financial report, including all possible variances. In particular provide a sales mix variance broken down by number of small and large dogs and planning and operating variance for feed and supplies. (12 marks) c) Write a brief report to Bill Jenkins on the financial performance of the kennels for the quarter giving advice for the future

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